New economic research, data, events and analysis from a London-based economist

Saturday, October 13, 2007

Outsourcing India

It was bound to happen, but it's a remarkable story nonetheless. Thousands of jobs taken by India from the west are being re-exported as wages shoot up. The Guardian's Randeep Ramesh reports that India outsources outsourcing:

From his tree-top-high office, Kris Gopalakrishnan, the head of India's
giant software company Infosys, explains the rise of an economic
phenomenon about to engulf the world: outsourcers are outsourcing
themselves.

Once known for sucking jobs out of call centres and IT
departments in the west, Indian technology firms are re-exporting them
to wealthier nations as wage inflation and skills shortages at home
reverse the process.

Infosys spent $250m this year buying the
Polish call centres of Philips, the electronics group, manned by
workers who speak half-a-dozen European languages. The company is
building up a network of offices stretching from Mexico to eastern
Europe to China to provide an "anytime, anywhere" solution to its
clients. "Our customers are global, so we have to become so," says Mr
Gopalakrishnan.

Infosys is not alone. Wipro, another hi-tech titan, has been on a
spending spree, buying up companies in America, Finland, Portugal and
Europe for hundreds of millions of dollars. Azim Premji, Wipro's
chairman, raised eyebrows on Wall Street when he talked this year of
setting up divisions in Idaho, Virginia and Georgia - US states he said
were attractive because they were "less developed".

Tata,
India's largest firm, is running call centres in Britain. ABN Amro, the
Dutch bank recently bought by an RBS consortium for £48bn, will pay
Tata Consultancy Services $200m to send work halfway across the globe
to Brazil, where software programmers will run computer systems.

Indian
software companies' skill is that they have been able to take complex
tasks from multinational firms, pull them apart and put them together
more efficiently. This expertise has reached a stage where it can be
done anywhere across the globe - grafting Indian technical knowhow onto
white-collar workers in Brazil or Saudi Arabia or even back to the US.

Precocious

The
ability of an industry in a developing country such as India to export
"managerial and entrepreneurial capital" to wealthier nations is
unprecedented, say economists. Arvind Subramanian, of Johns Hopkins
University in Baltimore, says that India exports 12% of its GDP
($120bn) in foreign direct investment. Professor Subramanian says this
is part of India's "anomalous pattern of development". Countries
typically specialise in industries such as IT only when their income
per head passes $15,000 and they do not export investment until per
capita GDP touches $45,000. The comparable figure for India is only
$900. "India finds comparative advantage in skills and managerial
capital ... how precocious is that?" he wrote this year.

The
other strange feature is that the Indian economy, booming at 9% a year,
is not driving the growth of India's software firms. Barely 2% of
Infosys's income comes from India. Instead Wall Street banks asking for
"Spanish language support" or China's booming economy sway investment
decisions. Mr Gopalakrishnan says Infosys's "non-English-speaking
revenues contribute about a fifth of the total. It is growing fast and
we have to build up expertise in languages."

Indian software
companies are replicating the model of bigger foreign rivals, such as
IBM and Accenture, which have large workforces around the world. Both
multinationals aim to have workforces of 100,000 in India in a few
years and companies such as Infosys are girding themselves for battle.
"Nobody dominates the space yet," says Mr Gopalakrishnan. "IBM is
probably the biggest and has revenues of $5bn. They built that up in
the age of the PC, which is 25 years old. We came about with the
internet. It's a different way of thinking."

The move highlights
two converging trends: first the demand for skilled talent in India is
sending salaries skyrocketing. One startup in Bangalore decamped to
Silicon Valley after finding that programmers were asking for wages of
up to 75% of those paid in California. Infosys is on target to hire
32,000 people around the world this year - only Wal-Mart has taken on
more staff. Bangalore's biggest companies are now hiring directly from
British and US campuses. The second trend is that Indian software
companies face a "skills crunch". Although 3 million students graduate
from Indian universities each year, only a fraction are considered good
enough for companies like Infosys...

Comments

Proving that the Global economy exists on a scale that none would have predicted we now have outsourcers outsourcing! As a UK company involved in recruitment of freelance IT specialists, particularly from India, it is fair to say that this area has indeed become increasingly expensive in recent times.

The fast pace of technology and services like outsourcing is a big help in the economic growth of India. The Philippines is now also becoming an active outsourcing service provider. Thanks for the post.

Proving that the Global economy exists on a scale that none would have predicted we now have outsourcers outsourcing! As a UK company involved in recruitment of freelance IT specialists, particularly from India, it is fair to say that this area has indeed become increasingly expensive in recent times.sesli sohbetsesli chat

I think that outsourcing in India has developed over the years. New innovations and technology is now being used to further enhance this industry. Couple it with the many advantages , I don't think the impact of outsourcing will decrease.

With this excessive of job outsourcing to India, India has emerged as a new nation regarding the following factors which earlier crippled India's growth in business. With democracy, support from the government, more freedom for businesses, fewer restrictions and regulations, lesser interest rates and fewer restrictions concerning outsourcing, India has become a more ideal place for job outsourcing.

I would like to thank you for the efforts you have made in writing this article. I am hoping the same best work from you in the future.
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